Oracle's bonds rallied on Thursday, even as its shares tumbled nearly 10%, after the company detailed a significant 0 billion financing strategy for fiscal year 2027 to expand its artificial intelligence (AI) data center network. The rally in the bond market was attributed to Oracle's commitment to borrowing discipline, including a pledge that it does not expect to issue any additional bonds for the remainder of calendar year 2026. This promise alleviated supply overhang concerns that had been impacting the company's credit spreads.\n\nThe 0 billion financing program is designed to be balanced, split roughly equally between equity and debt. This strategy includes deploying a previously announced 0 billion at-the-market equity program and mandatory convertible preferred securities, aiming to prevent leverage ratios from reaching dangerous levels and to preserve Oracle's investment-grade credit rating. While S&P and Moody's maintain negative outlooks due to negative free cash flow, Fitch maintained its BBB investment-grade rating with a stable outlook, acknowledging the near-term elevated capital expenditures for AI compute infrastructure.\n\nOracle's capital expenditure plans for fiscal 2027 are substantial, with the company anticipating up to 5 billion, significantly exceeding Wall Street's expectation of around 7.7 billion. CFO Hilary Maxson specified 0 billion in Oracle's own capital spending for fiscal 2027, plus an additional 0 billion to 5 billion that is expected to be repaid by customers, though a timeline for these repayments was not provided. This high capex, alongside the financing strategy, has raised concerns among equity investors about potential shareholder dilution and massive cash burn, leading to the stock's decline.
